CBI calls for interest rate cut

THE CONFEDERATION of British Industry called for a 0.5 per cent cut in interest rates yesterday following the release of its gloomiest economic survey in almost 20 years.

The CBI, which forecast that a further 28,000 manufacturing jobs would be lost before Christmas, warned that the risks of recession would be substantially increased if the Bank of England failed to act next week.

Adair Turner, the CBI's director general, said: "This survey suggests a sharp downturn for the UK in the short term, with an increased risk of outright recession. We are therefore calling for a cut of a half per cent in interest rates to ensure this downturn is not unnecessarily prolonged."

Economists said the rapid fall in the CBI's measure of business confidence - which had traditionally been a good predictor of changes in UK economic growth - suggested that recession was now a real possibility.

"Today's grim news on business confidence fully justifies a further rate reduction next Thursday," said Adam Cole at HSBC Securities.

David Coleman at CIBC Markets commented: "Perhaps the most disturbing aspect of this survey is the sharp decline in employment expectations."

Francis Maude, shadow Chancellor, joined the calls for an interest- rate cut. He said there should be an immediate one percentage point reduction.

Stephen Byers, Chief Secretary to the Treasury, again hinted that the Government would also like to see lower interest rates.